Hormuz Shipping Risk Emerges as Main Market Threat After Iran Strikes: Analysts
The potential for maritime disruption in the Strait of Hormuz to trigger broad economic fallout across global trade networks is now the central focus for markets following Israeli and U.S. strikes on Iran, according to Abhi Rajendran, fellow at the Center for Energy Studies at Rice University’s Baker Institute.
He believes that the threat alone is enough to destabilize shipping, adding “Strait of Hormuz and maritime disruption. That’s the key. Even if Iran doesn’t officially close it, shippers and tankers will err on the side of caution and avoid it. They don’t want to get caught in the crossfire,” Rajendran noted. “There’s going to be an impact on insurance rates, and it’s going to get quite messy.”
A prolonged war would carry broad economic implications, Rajendran warned, noting that some shippers are already rerouting to avoid the Strait of Hormuz. Even without a formal blockade, he expects these tanker diversions and surging war-risk insurance premiums to significantly raise the delivered cost of crude.
He also suggested prices could be near $80 per barrel if trading were open today, adding that $100 per barrel oil would be possible in a severe escalation involving maritime disruption.
“$80 dollar oil is almost guaranteed. We’ve seen it before with the Russia-Ukraine conflict, prices went over $100 to near the $120s per barrel,” Rajendran said. “I think Washington will be mindful of high gas prices. It’s midterm year. They’re focused on the economy and they don’t want inflation to rear its head up again.”
The Strait of Hormuz is one of the world’s most critical energy chokepoints, facilitating the daily transit of roughly 20 percent of global petroleum consumption and about one-fifth of the world’s liquefied natural gas trade, according to the U.S. Energy Information Administration (EIA). EIA estimated that about 84 percent of the crude oil and condensate and 83 percent of the liquefied natural gas passing through the strait were shipped to Asian markets, with top recipients China, India, Japan and South Korea accounting for nearly 70 percent of crude flows and facing the highest risk of price disruption.
Kenneth Medlock, Rajendran’s colleague at the Baker Institute and the senior director of Rice University’s Center for Energy Studies, said that it would be “very difficult” to completely close off the strait, considering the U.S. naval influence in the area. However, he said the potential attack could certainly drive up the risk assessment of movement through the strait, which could create upward pressure on prices and insurance on tankers.
“There’s all kinds of ripple effects that you have to start accounting for that ultimately manifest at a higher price,” he said.
Sources disagree on the region’s bypass capacity. While some analysts estimate that 15 percent to 50 percent of exported crude could be diverted to current or upcoming alternative routes, the EIA stresses that most volumes currently remain entirely dependent on the Strait of Hormuz.
If about 20 percent of the world’s oil stops flowing, Medlock said the global market is not fungible enough to overcome its scars.
“You could see China start to draw on its inventory. There might be some withdrawals from the Strategic Petroleum Reserve. You could see the IEA use its strategic stocks,” he said. “It still would inflict some serious damage on the global market.”
Another supply concern is attacks on or near the Kharg Island, according to Medlock. The island holds 90 percent of Iran’s cargo, with a loading capacity of roughly 7 million barrels per day.
Explosions have been reported near the island, which Medlock said will “immediately disrupt Iran’s ability to move oil at all.”
“That’s when I think they would be more likely to then try to reciprocate (in military action),” Medlock added. “… We can certainly say the risk associated with moving oil and natural gas out of the Middle East is heightened.”
Rajendran said the near-term direction of oil prices will depend on whether tensions escalate further or shift towards de-escalation. “If it’s short term, markets adjust, it all depends on magnitude and duration,” he said, adding that any prolonged warfare will have much broader economic implications.
“The main thing to watch is the push for regime change. Like… How would that even go? The Iranian regime in Tehran is not serious about addressing the nuclear angle,” Rajendran noted. “This is not going to be like airlifting Maduro out of Venezuela, there’s the IRGC (Islamic Revolutionary Guard Corps) and then their military. It’s very tricky,” he added.
Near-term energy markets will see the geopolitical risk premium heightened because of a higher risk environment, Medlock said.
“I think that will manifest in higher prices, higher markets and ultimately this will settle out, hopefully sooner rather than later, because the longer this drags, the greater and greater that risk premium becomes cemented into the market,” Medlock said.
Carl Larry, who leads the trading and risk team at energy market intelligence company Enverus, said risk premiums could rise higher than the projected $10 per barrel to even $15 per barrel, which he said is a stark difference from when risk premiums reached $8 to $10 per barrel in the U.S. and Iraq war in 2003.
“This is going to have to be much higher because the expectation of (the conflict) ending quickly is not going to be there, the expectation of escalation will not be there,” Larry said.
When assessing the U.S.’s oil capacity and production capabilities, Larry said the country finds itself at a trade surplus, whereas 20 years ago it was always at a deficit.
“Can we survive (the conflict)? Sure, but that doesn’t mean that prices will be higher, so that will put pressure on the US to kind of deal with that,” he said.
The U.S.’s Strategic Petroleum Reserve (SPR) has also tumbled in the past few decades, Larry explained, which would require more oversight in handling the ripple effects of the conflict. As of February 20, the U.S. SPR stood at a total 17.45 million gallons, according to the U.S. Department of Energy.
Outside U.S. borders, a meeting is scheduled for Sunday for members of OPEC+. Larry said the goal would be to showcase an “allied front” for a solution to the conflict and incumbent loss of supply.
“I don’t think we will get countries that oppose the conflict looking to shut up the US. I think they’re just going to stay neutral and say, ‘We don’t want to be involved,'” Larry said. “They will discuss ‘one of us is going to lose production. One of our members may disrupt our export production, but how are we going to band together to make up for this?'”
Medlock reiterated the risk involved for the Middle East region and its countries.
“The story is less about Iran not exporting and more about what if Iran could prevent all of its neighbors from also exporting,” he said.
Rajendran said the best case scenario is to de-escalate and try to find off-ramps, but there have been deep rooted frustrations between the two countries “for a long time.”
“There’s a feeling that talking, just talking is not going to get you right,” Rajendran noted.
He noted that some neighboring countries like Dubai have already suffered unintended collateral damage and other Arab nations like the UAE, Abu Dhabi, Saudi Arabia, Kuwait, and Iraq, all have a vested interest in preventing the situation from getting worse and protecting their respective countries.
Brent crude prices on Friday closed at their highest level since July 2025. Oil futures are set to reopen Sunday evening.
Around 20 percent of California’s foreign crude oil supply comes from Iraq, with Saudi Arabia and the UAE accounting for 5 percent and 4 percent, respectively, according to 2024 data from the California Energy Commission. About 20 percent of crude oil imported to the U.S. Gulf Coast in 2025 came from Persian Gulf countries, said Jaime Brito, Executive Director of Refining and Oil Products at Dow Jones.
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California and the nation in general are limited in sourcing crude oil through tankers within the country due to restrictions set by the Jones Act, said Colin Grabow, Associate Director at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.
“We have a policy that deliberately severs potential domestic supply chains and makes it more difficult to transport energy to where it’s needed,” Grabow said. “The Jones Act is billed by its advocates and supporters as a law that supports the country’s national security, economic security. I think it’s very difficult to look at the current situation and see how this is helpful by giving California fewer options in these sorts of scenarios and cutting it off from oil that’s virtually in its backyard.”
In its 2026 annual report Kinder Morgan quoted charter rates for medium-range Jones Act tankers at about $90,000 per day, while international flagged MR tankers are quoted at around $25,000 per day, according to Cavalier Shipping Founder James Lightbourn.
While Gulf Coast crude oil is generally “light sweet” and California refineries are designed to run “medium-to-heavy sour” crude oil, the Gulf Coast region does produce some heavy crude that would be a “nice” option to have at moments such as these, Grabow said.
“I’m not going to pretend that absent the Jones Act they just entirely get domestic supplies,” Grabow said. “But I do think that meaningful quantities of crude would flow from domestic sources, which would be nice, besides the economics of it, you don’t have to worry about the Strait of Hormuz.”
Reporting by My Nguyen, mynguyen@opisnet.com; Shaheer Naveed, snaveed@opisnet.com and Bayan Raji, braji@opisnet.com; Editing by Rachel Stroud-Goodrich, rstroud-goodrich@opisnet.com